Railways engaged NIPFP to study the Compute Value of Social Service Obligation: MOSR

National Institute of Public Finance and Policy (NIPFP) submits Report on Social Service Obligations of Indian Railways.

NEW DELHI: The railways has paid over Rs 29 lakh to a premier research institution to conduct a study on computing the value of social service obligation being borne by them, Union minister Rajen Gohain said in the Rajya Sabha.

In a written reply, he said while there is no subsidy on passenger and freight segment, the railways carries out certain transport activities which are uneconomic in nature and in the larger interest of the country.

“The Indian Railways had appointed the National Institute of Public Finance and Policy (NIPFP) in 2017 for study of developing a mechanism for computing the value of Social Service Obligation (SSO) being borne by the Indian Railways. Rs 29,50,000 has been paid to NIPFP for this study.  The objective of engaging NIPFP is to bring out a comprehensive report on Developing a mechanism for computing the value of Social Service Obligation (SSO) being borne by Indian Railways with special emphasis as:

  1. Review the existing literature on computation of SSO,
  2. Prepare an independent assessment of SSO justifying the basis of the same and (iii) provide rationale for an appropriate framework for compensating the SSO in context of Budget merger and larger Government policy.

“NIPFP had submitted a Report on Social Service Obligations of IR dated November 28, 2017. The report is under consideration,” the minister of state for railways said.

The railways continues to incur losses every year by performing a variety of un-remunerative services and most of these losses are due to low ordinary second class fare, low suburban and non-suburban season ticket, loss on essential commodities carried below cost, and a variety of concessions granted on passenger ticket, he said.

“Working of uneconomic branch lines, too, imposes a heavy burden on Indian Railways’ finances. A gap is thus created between the revenue income generated through these services and their cost,” Gohain added.

“Railway is the preferred mode of freight transport if we consider transaction costs associated with inter-state movements of goods (e.g., delays in check posts, toll tax, compliance costs associated with multiple documentation). However, over the years road freight transport has become a preferred mode of transport in India due to delays in railway freight movements, damages/ losses of goods in transit, high cost vis-à-vis road transport etc. There is no doubt that railways could regain the freight transport market again if problems associated with railway freight transportations are resolved, and adequate capacity is created,” he said.

Rationalising fares to prevent the financial derailment of Indian Railways is politically sensitive, operationally critical

The concept of social responsibility has always been a part of the passenger business in IR. As the number of passenger trains increased over the years, creating a rational fare composition gained more importance in the total structure of passenger fare–freight fare regime of IR. Fixing these fares has become a sensitive and vital issue for a succession of national governments. Passenger services and fares have an emotional connect with the masses and, therefore, have become a handy political tool to appease the vote banks. At the same time, inept handling of either the fares or the services can potentially cause widespread turmoil—in both rural and urban areas—and destabilise governments.

Consequently, over the years, socio-political stakes have hijacked the process of passenger fare structuring, rendering it a victim of populist governance, where political sensitivities have taken precedence over the operational criticality of passenger fares.

After decades of being a victim of fare politics, IR finally seems to have realised the need to change public perception towards ticket prices. In 2016, for the first time in the chequered history of the organisation, IR’s website and rail tickets carried a message: “Are you aware that 43% of your fare is borne by the common citizens of the country?” While there has been no study to measure the psychological or behavioural impact of this message on passengers, this unprecedented gesture clearly indicates that IR acknowledges its fare structure as not entirely sound.

With the implementation of the Seventh Pay Commission, up to 68 percent of IR’s total revenue will be consumed for salaries and pension fund, putting a severe strain on plan outlays for capital expenditure and other operational and maintenance costs. Therefore, generating a stable and significant revenue from passenger travel through such well-planned fare rationalisation has become much more of an imperative. For decades, freight business has been the “earning” member of IR, and passenger business has been the “dependent”. Such an economic relationship between the two cannot change overnight, but it can gradually transform. While IR must be financially self-sufficient, it must also fulfil its social obligations as an organisation. The right balance between such compelling roles can only be achieved by taking nuanced but necessary steps towards rationalising passenger fares.